Just leasing more land won't open up the property market

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The city's property market, which is dominated by a few large developers, is expected to be opened to more competition under the administration of chief executive-elect Leung Chun-ying, assumptionists say.

SCMP, March 28

Well, it wasn't actually assumptionists who said it. That's just my made-up word for them. The actual word in the text was 'analysts'.

But as it seems anyone can call himself an analyst these days, making it impossible to define the term, and as this particular analysis was just a mass of assumptions and conjectures, why not call them assumptionists?

Here, for instance, we have an estate agent who has now become our next chief executive through the ineptitude of the natural front runner and whose political career to date has consisted of little more than keeping to the agenda of a rubber stamp called the Executive Council.

We are now to assume, however, that he has only to intone the pronouncement 'Abracadabra' and our property market will be opened to more competition.

We are also to assume that the reason four developers dominate the property market is that we do not have enough land supply - although we have 250,000 vacant flats at the moment. Just create more land and the problem will go away. It's so simple. All you need is a bumped-up estate agent.

This is not to say it is beyond the powers of a chief executive to bring more competition to the market. It can be done but the reforms would have to go much deeper than just the release of a little more land.

The basic problem is that if you want to build a decent-sized residential block in this town and don't already have the necessary land and lease conditions for the land, you will have to put down billions of dollars to acquire that land at auction or change the lease. You will then have to wait two to three years to get your money back from the buyers of the flats.

Only a handful of developers have that sort of money at hand to put at risk for so long, or can tap the banks for it. That's why the market is dominated by four developers.

And the reason we have this problem is that we operate under an outdated colonial land development system that was devised more than 200 years ago to make colonies pay for their own administration. Blame the Americans. They started it by rebelling in 1776 rather than paying taxes for their defence.

The system works by making the government head landlord to all land and making it available to others only on leasehold. Public administration can then fund itself by selling leases, renewing them and changing lease conditions.

The drawback is that when you lease anything more than farm plots this way you soon run into the barrier of needing huge sums up front for long periods of risk.

If you can get over the barrier, things become easier again. You have the advantage over the bureaucrats of being in control of timing. You can also get the banks to put up the money for land acquisition and you can pay for construction by pre-sales to homeowners. You don't really have to put down any money yourself. Remember this the next time Li Ka-shing talks about how much money he has invested in Hong Kong.

But it's a colonial system and not only are we past colonial times but it is not a system adapted to the requirements of a modern city. A better system these days would be one of land development taxes. These would work by assigning development values to all pieces of land, then charging an annual tax on them. We would still get land revenues but would accrue them as annual revenue streams rather than lump-sum payments. The lump sum barrier would be gone and more people could participate.

Without such reforms, our big four developers will remain the big four and others will remain effectively shut out. I see no sign that our new chief executive has yet come this far in his thinking.